Many investors are interested in an energy investment that will prove to be profitable over the long-term. One of the best energy investments in my opinion is a pipeline MLP. Pipeline MLPs benefit from the fees that they collect for the gathering, processing, storage and transportation of fuel.
ONEOK Partners (OKS) is an $11.36 billion Oklahoma based large-cap MLP with an attractive 4.6% yield and 15,900 miles of pipe. It is responsible for the gathering, processing, storage and transportation of natural gas in the U.S.
One of the beauties of owning a pipeline MLP is that the fluctuating price of oil and natural gas isn't directly tied to its unit price. The MLP makes money from the fees that it collects based on contracts. The partnership can be thought of as a toll-taker of the energy sector. It is currently diversified with more than 2,000 contracts.
The commodity risk for the partnership is primarily tied to the gathering and processing segments and not the transporting and storage segments. The risk is mitigated through hedging.
ONEOK is fairly valued on the low end of the scale as it trades at 3.42 times its book value per share. I would consider it undervalued if it traded under three times book value per share.
Although the dividend payout has experienced a few stagnant years in the past, the partnership has raised the payout steadily over time. The payment is contingent upon the partnership's strong cash flow. The operating cash flow was $1.13 billion as of December 31, 2011. The partnership's 4.6% yield provides investors with a steady, predictable income stream that significantly outperforms cash with a little more risk.
ONEOK Partners operates underground storage facilities in Oklahoma, Kansas and Texas. Its natural gas pipeline operations are located in North Dakota, Minnesota, Wisconsin, Illinois, Indiana, Kentucky, Tennessee, Kentucky, Oklahoma, Texas and New Mexico. It also gathers and processes liquid natural gas in Kansas, Oklahoma and Texas.
The partnership has $2.7 billion to $3.3 billion invested in growth projects lasting through 2014. It also has a $1 billion backlog in unannounced growth projects according to the April investor presentation.
Overall, ONEOK Partners looks like a solid, income producing investment over the long-term. Use its dividends to help pay for the high cost of gasoline at the pump.